Single standard rate: Finance Minister charts GST reform map

25-Dec-2018

Single standard rate: Finance Minister charts GST reform map

Finance minister Arun Jaitley said the goods and services tax (GST) could shift to a single standard rate and lashed out at the Opposition for belittling the reform, urging it to “seriously introspect”.

In a Facebook post, Eighteen Months of the GST, Jaitley said the levy was fully in place and that the first set of rate rationalisations was complete with the phasing out of the 28% slab, except for luxury and sin goods. GST was rolled out nationwide on July 1, 2017.

“A future road map could well be to work towards a single standard rate instead of two standard rates of 12% and 18%,” he said, two days after the GST Council approved more rate cuts. “It could be a rate at somemidpoint between the two.”

A committee headed by then chief economic adviser Arvind Subramanian had, ahead of the GST launch, suggested a revenue-neutral rate of 15-15.5%.

“The country should eventually have a GST which will have only slabs of zero, 5% and standard rate with luxury and sin goods as an exception,” Jaitley wrote, cautioning that this will “take some reasonable time when the tax will rise significantly”.

He listed the next important steps for GST, which Jaitley said has been at the end of ill-informed and motivated criticism. “Our next priority will be to transfer cement into a lower slab.

All other building materials have already been transferred from 28% to 18% and 12%. The sun is setting on the 28% slab,” he said. He also referred to a composition scheme for small service tax assessees that is under consideration.

The 28% slab that had over 225 items when the tax rolled out has about 30 now, mostly sin goods or luxuries, barring exceptions like cement that are high revenue earners and could not be moved.

Jaitley explained why India went in for multiple slabs, which has been a subject of criticism.

“Multiple slabs were fixed transiently in order to ensure the tax of no commodity goes up radically,” he said. “This contained the inflation impact.”

Revenue concern

Jaitley also dismissed criticism over GST revenue, saying there was an inadequate understanding of both targets and the revenue increase, which were unprecedentedly high.

GST rolled out in July 2017 but the base year for revenue increase is FY16 and for each year a 14% rise is guaranteed to the states.

“Thus, even when 18 months have not been finished since the launch of GST, on this day every state has a target of improving its revenue with three 14% increases compounded annually over the base year of 2015-16,” he said, pointing out this translated to a 50% increase in the second year itself.

“It is almost an unachievable target,” he said, before taking note of the progress. Six states have already achieved the target while another seven are close, leaving only 18 that are still more than 10% away. This has happened despite significant rate reduction since the rollout. “Notwithstanding the substantial tax reduction, the GST collection in the first six months of this year has shown a significant improvement as compared to the first year.”

The average monthly tax collected in the first year was Rs 89,700 crore compared with Rs 97,100 crore in the second year.

As was the case with value-added tax (VAT), by the third to fifth year, the ability to increase revenues rises and the gap closes. The requirement of compensation cess in the second year is expected to be much lower than the first year.

Congress legacy

Before GST, India had the worst indirect tax system in the world with as many as 17 levies, he said.

The standard rates of VAT and excise were 14.5% and 12.5%, respectively, that together with the central sales tax and the cascading effect of tax on tax added up to 31%.

“The assessees had only two options – either to pay a high rate of tax or evade it,” he said.

Before GST turned India into a common market, “interstate sales became inherently inefficient because trucks had to wait for hours and days at the state borders”, he said.

GST has lowered the tax rate, increased the tax base, raised collections, made it easy for the trade and reduced the human interface on assessments.

“The transformation has been done over a period of 18 months.

Any abrupt transformation could have been either detrimental to revenue or to trade,” he said.

“Those who oppressed India with a 31% indirect tax and consistently belittled the GST must seriously introspect. Irresponsible politics and irresponsible economics is only a race to the bottom.”

Congress president Rahul Gandhi has called GST the Gabbar Singh Tax, criticising the manner of its implementation.

He has also said that the latest changes are in line with what the Congress party has suggested.

Jaitley pointed to the GST Council, comprising the Centre and the states and charged with taking decisions on the levy, calling it India’s first experiment with a federal institution.

The council has behaved with utmost responsibility on several thousand decisions taken unanimously with consensus. “The political noise outside is inconsistent with the harmony inside the council,” he said.